Correlation Between BMO Aggregate and American Hotel

Can any of the company-specific risk be diversified away by investing in both BMO Aggregate and American Hotel at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining BMO Aggregate and American Hotel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BMO Aggregate Bond and American Hotel Income, you can compare the effects of market volatilities on BMO Aggregate and American Hotel and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in BMO Aggregate with a short position of American Hotel. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and American Hotel.

Diversification Opportunities for BMO Aggregate and American Hotel

0.05

Correlation Coefficient

BMO Aggregate  American Hotel

Significant diversification

The 3 months correlation between BMO and American is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and American Hotel Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Hotel Income and BMO Aggregate is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on BMO Aggregate Bond are associated (or correlated) with American Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Hotel Income has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and American Hotel go up and down completely randomly.

Pair Corralation between BMO Aggregate and American Hotel

Assuming the 90 days trading horizon BMO Aggregate Bond is expected to under-perform the American Hotel. But the etf apears to be less risky and, when comparing its historical volatility, BMO Aggregate Bond is 12.66 times less risky than American Hotel. The etf trades about -0.05 of its potential returns per unit of risk. The American Hotel Income is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  36.00  in American Hotel Income on September 3, 2024 and sell it today you would earn a total of  0.00  from holding American Hotel Income or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

BMO Aggregate Bond  vs.  American Hotel Income

BMO Aggregate Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO Aggregate Bond has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BMO Aggregate is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

American Hotel Income

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Hotel Income are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, American Hotel is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with BMO Aggregate and American Hotel

The main advantage of trading using opposite BMO Aggregate and American Hotel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Aggregate position performs unexpectedly, American Hotel can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in American Hotel will offset losses from the drop in American Hotel's long position.

The idea behind BMO Aggregate Bond and American Hotel Income pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..